Sterling skidded to a near 12-year low on a trade-weighted basis in the last fornight of August, falling across the board in the face of news that Britain’s economy recorded zero growth in the second quarter.
Investors dumped the pound after an official revision quarter-on-quarter growth in the three months to June down from an earlier reading of 0.2 per cent growth. Analysts’ forecasts had been for a revision to 0.1 per cent growth.
“The data increased the chance of a recession in the UK, so that’s why sterling is under considerable pressure and that’s why we think sterling will remain under pressure,” said Antje Praefcke, currency strategist at Commerzbank.
The pound fell below 203 yen, nearing a three-month low of around 201.74. On a trade-weighted basis, the pound dropped to 90.60, a level last seen in late 1996.
Britain’s economic performance in the second quarter was the worst since 1992 when the economy was in the throes of its last recession.
On the year, gross domestic product (GDP) was 1.4 per cent higher, down from an initial reading of 1.6 per cent and the weakest since the fourth quarter of 1992.
David Tinsley, economist at nabCapital, said one of the brighter spots was a fall in GDP deflator inflation to 2.6 per cent from 3.0 per cent. While inflationary pressure at the retail end of the supply chain was persisting, there was evidence that pipeline pressures might be easing.
“Taken with increasingly slack capacity, that means the Bank of England will be able to cut its key policy rate next year to address the slowdown - though by then it is increasingly likely the UK will already be in recession.”